Question:
(Under applied or over applied overhead) At year-end 2010, Dub's Wind Generator Co. had a $40,000 debit balance in its Manufacturing Overhead Control account. Overhead is applied to products based on direct labor cost. Relevant account balance information at year-end follows:
|
Work in Process
Inventory
|
Finished Goods
Inventory
|
Cost of Goods
Sold
|
|
Direct material
|
$20,000
|
$ 80,000
|
$120,000
|
|
Direct labor
|
10,000
|
40,000
|
50,000
|
|
Factory overhead
|
20,000
|
80,000
|
100,000
|
|
$50,000
|
$200,000
|
$270,000
|
a. What predetermined OH rate was used during the year?
b. Provide arguments to be used for deciding whether to prorate the balance in the overhead account at year-end.
c. Prorate the overhead account balance based on the relative balances of the appropriate accounts.
d. Identify some possible reasons that the company had a debit balance in the over- head account at year-end.